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Samsung Electronics issued a public apology and acknowledged that the company was considered to be in “crisis” following Tuesday’s release of worse-than-expected profit forecasts.
The South Korean chip giant reported preliminary third-quarter operating profit of 9.1 billion won ($6.8 billion), below market expectations for a profit of 10.3 billion. of won, according to LSEG SmartEstimates.
While its expected operating profit almost tripled from the same period last year, following a surge in memory chip prices, it is down almost 13 percent from the second quarter of this year.
The company’s stock price has fallen nearly 30 percent over the past six months due to growing concerns about its competitiveness in cutting-edge chips used in artificial intelligence systems.
“The management team of Samsung Electronics would like to apologize for failing to meet your performance expectations,” Young Hyun Jun, head of Samsung’s chip division, wrote in a letter to customers, investors on Tuesday. and employees.
“We have raised concerns about our technical competitiveness, with some talking about the crisis Samsung is facing. As leaders of the company, we take full responsibility for this,” said Jun, who took over the division in a management reshuffle in May.
Tuesday’s worse-than-expected forecast underscores investors’ concerns about deteriorating memory market conditions and the possibility of a slowdown in AI investment by big tech groups, although some concerns have been allayed by analysts. recent optimistic guidance from Micron Technology for the current quarter.
“Concerns are growing as demand for traditional memory slows and demand for smartphones is weaker than expected, while its entry into the HBM (advanced high-bandwidth memory) market is delayed compared to competitors” , said Kim Hyun-tae, analyst at Shinhan Securities.
Concerns about the sector’s outlook intensified after Morgan Stanley predicted an impending memory slowdown, citing a decline in demand for conventional Dram memory and a possible oversupply from HBM.
“Memory conditions are starting to deteriorate,” analysts Shawn Kim and Duan Liu said in a recent report. “Revenue and margin growth will become more difficult from here as we move beyond late-cycle conditions.”
Macquarie analysts also warned of a possible supply glut in Dram amid slowing demand for mobiles and PCs, predicting that Samsung could lose its market leadership.
Samsung shares fell last week to their lowest level in 18 months as the company struggled to catch up with SK Hynix and Micron in supplying the most advanced HBM chips, a crucial component of AI systems.
SK Hynix, Nvidia’s main supplier of HBM chips, announced last month that it had started mass production of 12-layer HBM3E chips, its most advanced version, widening its technology gap with Samsung in the fast-growing segment and high margin. Samsung’s HBM3E chips have reportedly not yet passed qualification tests from industry leader Nvidia.
“A delayed foray into Nvidia with HBM3E costs a big market opportunity,” Daniel Kim and Jayden Son, analysts at Macquarie, said in a recent report. “Increasing production yield is another challenge, even after product qualification. »
Samsung is also struggling to close the gap with Taiwan Semiconductor Manufacturing Co in contract chipmaking, where the company is expected to suffer billions of dollars in losses this year. Macquarie analysts have warned of the possibility that The $17 billion Samsung foundry in the town of Taylor, Texas, could be a “large stranded asset” due to lack of major customers.
Samsung said the Taylor factory will begin production in 2026 of cutting-edge chips at 4nm and below to meet growing customer demand for advanced nodes amid the AI boom.
Tougher competition in the high-end smartphone market is another concern. Huawei launched a $2,800 tri-fold phone last month to compete with Samsung, while Apple unveiled the new iPhone 16 last month, promising a steady rollout of new generative AI features.
The weak forecast comes as Samsung cuts some of its 147,000 overseas employees and battles growing worker discontent at home. The company said its overseas subsidiaries were “making routine workforce adjustments to improve operational efficiency.”
“Our primary focus will be on improving our core technological competitiveness,” Jun wrote, acknowledging the “testing times” the company faces. “We will review our organizational culture and processes and take immediate action to rectify any areas that require improvement. »